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PDD Holdings (NASDAQ:PDD) is the worldwide tech firm behind Pinduoduo in China and Temu internationally and its share worth is down 36% since 2021. And at simply 11.7 occasions ahead earnings, PDD inventory is priced like some FTSE 100 worth play.
Let’s check out why this Chinese language inventory is so low cost.
Temu’s mind-boggling ascent
PDD’s procuring platforms join consumers on to Chinese language producers in what is typically referred to as a ‘factory-to-consumer’ mannequin. This cuts out numerous middlemen, permitting the corporate to supply merchandise at rock-bottom costs.
Buying on Temu’s app is finished by way of a gamified expertise. Having used it prior to now, I’d say the garish pop-up packing containers and prize wheels are usually not for everybody. I spend as a lot time urgent the shut buttons as I do truly procuring!
However it appears to resonate with loads of different people, as Temu has completely exploded in recognition since launch in 2022. Certainly, based on Statista, it was probably the most downloaded procuring app worldwide in 2024.
PDD doesn’t get away Temu’s monetary numbers, and I think that’s as a result of this unit continues to be unprofitable and subsidised by the extra established Chinese language operation. However PDD’s general income surged almost 90% in 2023 and 59% final yr. Group income have additionally exploded larger over this time.
A double whammy
Till just lately, Temu benefited massively from duty-free imports of small packages within the West. Nonetheless, President Trump has closed this loophole, in addition to slapping enormous tariffs on many imported Chinese language items.
In response, Temu has began transport to US prospects from home warehouses. This has pushed up costs, hit income, and stunted worldwide growth. Fewer individuals are downloading and/or utilizing the app within the US because it has scaled again advertising and marketing spend.
In Q2, PDD reported complete income progress of seven% ($14.5bn), however working revenue fell 21%.
Slowing gross sales progress
Beneath, we are able to see the corporate’s quickly decelerating income progress.
| Quarter | Income progress |
|---|---|
| Q1 2024 | +131% |
| Q2 2024 | +86% |
| Q3 2024 | +44% |
| This fall 2024 | +24% |
| Q1 2025 | +10% |
| Q2 2025 | +7% |
The corporate can be dealing with intense competitors, each home and worldwide. In China, it’s reducing service provider charges to remain aggressive. It’s additionally investing closely to enhance entry to distant elements of the huge nation. That is anticipated to weigh on near-term profitability.
Over time, nonetheless, these strikes ought to repay. And by 2028, income is tipped to exceed $100bn, up from $54bn in 2024. So PDD continues to be rising, simply not as quick as earlier than.
Very low cost valuation
Whereas Trump’s newest risk to slap a further 100% tariff on Chinese language imports provides danger, I imagine a lot of the dangerous information is already priced in. Primarily based on present forecasts, the ahead P/E a number of drops beneath 9 by 2027.
That’s extremely low cost for an revolutionary tech firm that serves round 1bn customers globally. With that many purchasers, PDD is definitely sitting on a goldmine of behavioural knowledge to energy its AI algorithms. This could give it a strong edge in focused promoting.
Lastly, it’s price noting that Li Lu — typically referred to as the ‘Chinese language Warren Buffett‘ — purchased PDD shares in Q2 for his hedge fund (Himalaya Capital Administration). He very hardly ever buys a brand new inventory.
Weighing issues up, I reckon this dirt-cheap share is price a glance, regardless of slowing progress and world commerce dangers. It is perhaps extraordinarily mispriced.
